RS 10: Cyprus & Deposit Insurance

Cyprus is an island country in the Eastern Mediterranean Sea that has made economists and bankers turn heads across the globe. Why is this shocking? Well, for starters, I had never even heard of Cyprus before I read this article. If I had heard of it, I thought it was from a movie or something heinous like that. Cyprus is so small that its population is the same as the population of the Bronx and all of the banks of Cyprus combined are still smaller than the 30^th largest bank in the United States.

Cyprus is being talked about because they have deposit insurance. All banks are risky businesses (just ask Tom Cruise),

whether in a small neighborhood in Cyprus or big city in California. What a bank does is actually a scary idea. They take our money and loan it out to people who don’t have to give it back for 30 years…when you hear it explained that way, you wonder what idiot even came up with the idea of banks. Why the heck would anyone think their money is safe in this messed up institution?

Deposit insurance basically says that “if the bank runs out of money, the government will step in, take over the bank, and make sure ordinary people with checking and savings accounts get their money back.” THIS is why people can trust in their bank. But it still makes me wonder…are interest rates really that great that people would risk putting their money in accounts? Do they just not care if they lose their money? Are people just not educated enough? Deposit insurance only covers so much, so I would hope people don’t go over the insured amount god forbid they could lose a large chunk of their money.

Back to Cyprus, they recently broke a major deposit insurance rule. “As part of a bailout agreement with the EU, the government of Cyprus announced a plan to take 6.7 percent from every insured bank account, and 9.9 percent from accounts with more than 100,000 euros.” This means that the average person who puts their money in a bank would not get their money back. THIS MEANS A PERSON LIKE ME WOULD NOT GET THEIR MONEY BACK. This is not okay. If people in the European Union notice this trend happening, people will stop believing in the banking system and eventually everyone will pull their money out of their accounts, messing up the entire financial and economic systems of Europe.

Word to the wise, piggy banks are back in style.